U.S. homeowners continued to amass home equity during the third quarter – as home prices continued to rise – but they were reluctant to make equity withdrawals due to higher rates, according to the Mortgage Monitor report from ICE Mortgage Technology.
Only 0.41% of tappable equity available at the start of the quarter was withdrawn, and while this is basically flat compared with the previous three quarters, its down 55% from the average seen during the 2010-2022 period.
“Despite the resurgence in tappable equity among U.S. mortgage holders, elevated interest rates are making homeowners reluctant to extract that wealth,” says Andy Walden, vice president of enterprise research for ICE, in the report. “Indeed, in recent quarters, equity withdrawal rates have been running at less than half their long-run averages. Mortgage holders extracted a mere 0.41 percent of tappable equity available at the beginning of the third quarter. That’s some 55 percent below the average withdrawal rate seen in the 12 years leading up to the Fed’s most recent tightening cycle. That’s equivalent to $54 billion to $250 billion over the last 18 months in ‘missing’ withdrawals that might have otherwise stimulated the broader economy.”
Rising equity levels also are contributing to low default and foreclosure activity – which means there won’t be a major wave of foreclosures hitting the market anytime soon.
“Though they hit an 18-month high in October, foreclosure starts remain 35 percent below prepandemic norms,” Walden says. “Lenders and servicers have many more options for working with borrowers to avoid foreclosure today than at almost any point in the past. Just to illustrate the scope: 70 percent of loans currently three or more payments past due are protected from foreclosure by ongoing loss mitigation efforts. Further, 58 percent of these seriously delinquent mortgage holders hold more than 20 percent equity stakes in their homes.”
These strong equity cushions, Walden says, give borrowers in foreclosure more options, “such as salvaging earned equity with a traditional home sale rather than going through foreclosure.”
“The more the industry can do to educate, and update, borrowers as to their equity positions, the better,” he says. “Loss mitigation can be much more successful when a borrower can make educated and informed decisions, fully aware of the options available to them.”
Photo: Tierra Mallorca